How Can We Address Our Retirement Deficits If We Don't Know What to Save or What We've Saved?

On a North Carolina company's website it describes its corporate culture as "team-driven" and "result-oriented." It might also add, "We actually care whether you can afford to retire," since annually it sends its 6,000 employees a Total Compensation Report, which tells them whether they are on track and what to do if they aren't. If there are 10 other companies in the country that do this, I'd be amazed.

In an sample communication provided to me, a 33-year-old employee was informed that his frozen pension plan would provide only about $2,000 a year in income and warned that at his current rate of savings in his 401(k) account he is scheduled to run out of money at age 74. The employee is urged to go to Fidelity Investment's website for employer accounts,, and use a tool to learn how much more he/she needs to save to get on target.

Most Americans are justifiably scared about retirement; according to a recent Gallup survey reported on The Huffington Post, 77 percent of 30- to 49-year-olds said that they were worried about it. Incredibly, despite the fact that the Employee Retirement Income Security Act has been amended at least 40 times since it was enacted in 1974, there is no requirement to tell workers how much to contribute to enable their 401(k) accounts to act like a real pension. So while credit card companies are required to communicate the "cost" of making the minimum payment on account balances, those managing 401(k) assets aren't required to communicate the "cost" of retirement adequacy and the minimum contribution needed to fund that goal.

Few people realize that if you've got a $50,000 salary at retirement, Social Security will only replace 40 percent of your income, so you need to accumulate 10 times your "final pay," or your salary near retirement, in your 401(k) savings so that you'll be able to replace at least 70 percent of your income. On the other hand, if your salary at retirement is $100,000 or more, you need to aim for almost 13 times your final pay, because Social Security replaces even less, around 29 percent of your salary. According to pension actuary James Turpin, how much you need to save is based on when you start saving: to achieve "10 times final," it's at least 10 percent of your pay if you start at age 25, but it increases the longer you wait, up to at least 48 percent of it if you wait until age 50.

Incredibly, most financial services companies appear not to know the formula -- or they come up with some one-size-fits-all rule of thumb that's supposed to work whether the person is 35 or 55. An August TIAA-CREF Institute survey of so-called experts came back with one-size-fits-all answers ranging from 12 to 15 percent of pay. C'mon people, this isn't rocket science or even actuarial science: if your kid gets a weekly allowance of $2 and she's saving up for a $7 movie ticket, how much she needs to save depends on how soon the movie opens.

A Vanguard Group spokeswoman said that they have calculated neither a goal nor the contribution rate required to achieve that goal, and Vanguard does not appear to realize that their clients are falling behind. Says Steve Utkus of Vanguard's Center for Retirement Research in May of last year, "The median tax-deferred holding among households near retirement was around $100,000 ... in 2007. The median value fell, of course, but now has likely recovered." Why he thinks a $100,000 nest egg is going to enable a retiree to meet mortgage and other payments is beyond me.

The second problem is that even those asset managers who try to educate employees about adequacy don't necessarily advise them to look at all their retirement savings, including balances left at previous employers and in rollover accounts. Spokespeople for Vanguard and Principal Financial Group confirmed that their retirement planning software has no feature that allows users to enter user names or passwords in order to drag in balances from their other accounts. Why does this matter? Americans are job-hoppers. The average person born in the latter years of the baby boom worked for more than 10 employers between the ages of 23 and 44 alone, according to the Bureau of Labor Statistics.

While Fidelity does offer software called Full View that has this feature, only about 700,000 individuals, or around 6 percent of its 11 million participants, use it. Unfortunately, it may not work for those who do use it: when I did, I got error messages when I tried to drag in account balance data from various accounts. So you know if I'm having a problem, a big chunk of the other users are, as well. A Fidelity spokesman was unable to explain what caused the glitches and whether they are widespread.

Being able to take the big picture of our retirement assets would not only encourage people to save more but to roll over their old account balances into the one at their current employer. This would not only result in lowering fees but would allow us to "update" our asset allocations in old accounts, which may be too stock-heavy for those of us approaching retirement. If we can't mandate more generous 401(k) plans, the least we can do is educate employees on how to take the "big picture" of their assets.

We need to at least begin to address the issue of 401(k) inadequacy in the remaining four months of 2011, because this is the first year that boomers turn 65 and haven't been informed that most of them can't retire. If they are told the truth, they can at least attempt to convince their employers to let them stay on the job for a few more years at their current salary. Otherwise, within a few years, they will run out of money and most likely will be forced to find low-paying jobs in retail or the fast food industry -- a fate that ensures that retirement is completely out of the picture.